PayPal Holdings Inc. (PYPL) is soaring after beating third-quarter earnings expectations.
The San Jose-based payment processing company bested analyst expectations for earnings per share, reporting $0.58 against expected EPS of $0.54, and posted $3.68 billion in revenue, which was above the $3.66 billion consensus forecast among analysts.
PayPal shares were up around 8% in pre-market trading on the beat, and the results are causing analysts along the Street to raise their targets for the surging stock, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
Value in Venmo
"I'll Venmo you."
The phrase is becoming the payment equivalent of "Google it," which is money to the ears of PayPal investors.
"I'm especially pleased with the strong overall momentum surrounding Venmo," PayPal CEO David Schulman said. "For the third quarter in a row, Venmo posted yet again another record for net new actives."
Total payment volume on the platform is now $16.7 billion, which represents growth of 78% year over year.
Schulman said monetization of the popular platform, while still in the formative stages, is at a "tipping point." He said that as of the last quarter about one in four Venmo users had made some kind of monetizable action.
Analysts are bullish on Venmo, which is helping them justify boosting their price targets.
"We are upgrading our recommendation on PayPal Holdings to Buy from Neutral with a price target of $95," BTIG analyst Mark Palmer said in a note on Friday morning. "Venmo monetization progress moves us off the sideline."
The early progress also enticed already-bullish analysts to increase their growth targets for the payment company.
"Venmo remains a bright spot," Stifel analyst Scott Devitt said in his note on Friday morning. "We believe PayPal's ongoing partnership efforts, potential monetization upside from Venmo, and growth-focused M&A should drive further market share gains and expand the company's total addressable market."
Devitt keyed in on these catalysts as signs that investors could be cashing in even more with PayPal in the future.
"We reiterate our Buy rating and are raising our price target to $108 from $102 previously," he said.
eBay and American Express
PayPal does not seem to have taken the break-up with eBay Inc. (EBAY) as hard as eBay has.
While PayPal surges, the bidding platform company's shares are sagging. PayPal executives said a move away from PayPal is a net negative for their former partner.
Schulman referenced a market research report put out by Ipsos that showed 54% of consumers on eBay were more willing to buy a product when a merchant accepted PayPal as a payment option. Essentially, eBay needed PayPal a lot more than PayPal needed eBay.
"Imagine if almost 60% of them would abandon a sale because PayPal Checkout wasn't available," Schulman mused.
To be sure, Schulman noted that the companies still have a five-year agreement in place for PayPal to be featured as an option on intermediated payments. Schulman said he hopes the two will remain "strategic partners" despite eBay's move toward managing payments away from the PayPal platform.
American Express Co. (AXP) has been eager to fill the void that eBay has created by pulling away from PayPal and has taken a big step in that direction.
"Today I'm very pleased to announce that we've signed a multifaceted partnership agreement with American Express," Schulman said. "Over the next several quarters PayPal will have enhanced access to American Express as a payment option in our wallet."
The Action Alerts PLUS team explained that PayPal is actually stronger given its ability to form these kinds of partnerships unencumbered by the long-term relationship with eBay.
"This new deal follows last week's announcement of a partnership with Walmart Inc. (WMT) that will allow customers to withdraw funds from their accounts at Walmart stores for a $3 fee," the Action Alerts PLUS team noted. "PayPal's ability to form new, exciting partnerships like these is why we believe its upcoming severed ties with eBay is actually a positive for the platform and not a negative like it is viewed."
Bottom Line
PayPal's latest results have prompted widespread raised expectations on the Street.
Analysts from JPMorgan, Canancord Genuity, Stephens, Jefferies, Stifel, Piper Jaffray and Keybanc Capital Markets all raised price targets and set buy ratings for the surging stock.
Considering the company has not missed analyst expectations since 2015, the bar likely will be aggressively set high by executives eager to grow.
"Overall, this is what we wanted to see," the AAP team said. "The PayPal trends remain solid and the newly announced partnerships increase the value proposition of the platform, making it more of an indelible product in today's society."
